A look at corporate, personal and, where relevant, partnership insolvency proceedings in Cyprus, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Διακανονισμοί και αναδιοργανώσεις
Arrangements and reconstructions
- This term derives from company law to describe any form of internal reorganisation of a company or its affairs including schemes for the amalgamation of two or more companies. Schemes can be used for solvent reorganisations of group structures, as well as for insolvent restructurings.
- Where a compromise or arrangement is proposed between a company and its creditors (or any class of them) or between the company and its members (or any class of them), the court may order meetings at which a majority in value of the creditors or members voting at the meeting must approve the proposed compromise or arrangement for it to be binding.
- If subsequently sanctioned by the court, the compromise or arrangement becomes binding on all creditors (or the class of creditors as the case may be) and also on the company.
- No moratorium arises during this process. The procedure is controlled by the company subject to the supervision of the court. It is flexible and, subject to proper preparation and planning, may be completed within a few months.
- Examinership is intended to facilitate the survival of the company and the whole or any part of its undertaking as a going concern by providing a period of protection from its creditors.
- A petition may be presented by the company, a creditor, a member (subject to various criteria) or guarantor of its liabilities.
- Where the court deems that a company is or is likely to be unable to pay its debts but is not yet being wound up, it may appoint an examiner who will advise whether the company is capable of being rescued, or whether it is insolvent. If such a rescue is considered possible, the examiner must put together a proposed scheme or arrangement that will involve a proposal to the company’s creditors.
Αναγκαστική εκκαθάριση από το δικαστήριο
- Compulsory liquidation (also known as compulsory winding up or winding up by the court) is a terminal process commenced by court order against a company or all types of partnerships, usually at the instigation of an unpaid creditor.
- A licensed insolvency practitioner is appointed to act as liquidator and the powers of the company's directors / the members of a limited liability partnership / the partners cease.
- It is unusual for a company or partnership to trade in liquidation. Instead, the liquidator’s role is to realise the company’s or partnership’s assets and distribute the proceeds to creditors. Once all distributions have been made, the company or partnership will be dissolved.
- Compulsory liquidation brings a stay on actions against the company or partnership, but it does not prevent secured creditors from enforcing their security.
Εκούσια εκκαθάριση από πιστωτές
Creditors’ Voluntary Liquidation (CVL)
- Creditors’ voluntary liquidation (also known as creditors’ voluntary winding up) is a terminal process commenced by a resolution of the company's shareholders convening separate meetings of members and creditors.
- A licensed insolvency practitioner is appointed to act as liquidator and the directors’ and members’ powers cease.
- It is unusual for a company or limited liability partnership to trade in liquidation. Instead, the liquidator's role is to realise the company/partnership’s assets and distribute the proceeds to creditors.
- Once all distributions have been made, the company or limited liability partnership will be dissolved.
- CVL does not provide an automatic stay on actions against the company or limited liability partnership but on application, the court may grant such a stay either generally or in relation to specific claims. Such court orders are rare and there is usually nothing to prevent secured creditors realising their security.
Διάταγμα απαλλαγής οφειλών από τον χρεώστη/ διάταγμα απαλλαγής οφειλών από τον πιστωτή
Debt Relief Order (DRO)
- For natural persons with no more than EUR25,000 debt and assets worth no more than EUR1,000.
- The debtor discloses their assets and liabilities to the Insolvency Service together with details of any attempts to identify or implement alternative debt repayment solutions.
- If the Insolvency Service considers the application to be eligible, it submits it to the court, which then issues a DRO.
- A debtor who wishes to implement a personal repayment plan is obliged to appoint an insolvency practitioner to put the plan to creditors. If creditors do not consent to the proposed plan, the debtor is entitled, in specific circumstances, to ask the court to impose the plan on their creditors on the basis that it was made in good faith.
- The law also provides for combined repayment plans for natural persons whose primary residence is mortgaged as security for the debts of very small businesses. Through this process, the debtor seeks an order of the court that the insolvency practitioner appointed by the debtor (to prepare and propose the personal repayment plan) be appointed examiner of the very small business.
Πτώχευση από οφειλέτη/ πτώχευση από πιστωτή
- A creditor or debtor is entitled to petition the court for a bankruptcy order, although a creditor can only petition if alone or jointly with another petitioning creditor, it/they are owed EUR15,000 or more, and the debt is a liquidated amount payable either immediately or at a specified time in the future.
- If a bankruptcy order is made, generally, control of the debtor’s assets and financial affairs will be transferred to a trustee in bankruptcy who will be responsible for distributing the debtor’s assets (or proceeds of sale of the same) to their creditors.
- The court will decide when the debtor can be discharged from their bankruptcy.
- Where a respondent, against whom a writ of attachment has been issued, cannot be located, the court is entitled to order that a writ of sequestration be issued against the respondent’s property.
- The writ of sequestration is directed at two or more persons appointed by the court, who are empowered to enter upon the respondent’s immovable property and collect, take and get in not only the rents and profits of such property, but also all the respondent’s goods, chattels and movable property.
- The appointees are required to detain and keep the same under sequestration and in their hands until an order to the contrary is made.
- The court is entitled to order payment, out of the proceeds of the sequestration, of all charges relating to the execution of the sequestration, including such reasonable remuneration of the appointees as the court thinks fit.
Διάλυση ομορρύθμων συνεταιρισμών-
1. Διάλυση με λήξη ή ειδοποίηση
2. Διάλυση λόγω πτώχευσης, θανάτου ή επιβάρυνσης
Dissolution of unlimited liability partnerships
1. Dissolution with expiry or notice
2. Dissolution as a result of bankruptcy, death or encumbrance
Διάλυση ετερορρύθμων συνεταιρισμών
1. Διάλυση με λήξη ή ειδοποίηση
2. Διάλυση λόγω επιβάρυνσης
Dissolution of limited liability partnerships
1. Dissolution with expiry or notice
2. Dissolution as a result of encumbrance
A partnership is or may be dissolved in the following circumstances:
- If the partnership was entered into for a fixed term, on the expiration of that term.
- If the partnership was entered into for a single venture or undertaking, on the completion or termination of that venture or undertaking.
- By one of the partners giving notice to the other partners of their intent to dissolve the partnership.
- Subject to any agreement between the partners to the contrary, by the death or bankruptcy of one of the partners.
- At the option of the other partners, if any partner suffers their share of the partnership property to be charged under law for their own separate debt.
- Following an application by a partner, upon the court decreeing the dissolution of the partnership in circumstances where the business of the partnership can only be carried on at a loss.
Διαχειριστής / Παραλήπτης
- A creditor holding a charge over assets can appoint a receiver to realise the assets subject to the charge and discharge the debt out of the proceeds of sale. The contractual powers given to receivers are extensive and include powers to preserve, manage and sell the charged assets in the event of a default by the mortgagor.
- A receiver/manager is appointed pursuant to a floating charge: a form of charge over one or more classes of assets of a company that gives the company the freedom to deal with the assets during the ordinary course of its business until a specified event occurs which causes the charge to “crystallise” and become a fixed charge, preventing any further dealing by the company with the charged assets.
- The floating charge ordinarily gives the mortgagee the powers to appoint a receiver to receive the income and preserve the assets pending sale, and to appoint the receiver or another person as manager in place of the debtor of the subject matter of the floating charge, whose responsibility it is to carry on the business and sell it and the other assets charged in order to repay the debts owed to the mortgagee.
- To enable the mortgagee to avoid liability for the receiver’s management of the undertaking, the floating charge declares the receiver to be the agent of the company, which accordingly is solely liable for their acts and defaults. An appointee with the dual role of receiver and manager accordingly becomes the new managing agent of the company.
Διαχειριστής στη βάση έγγραφου υποθήκης
Receiver of a mortgaged immovable property
A receiver may be appointed over a mortgaged immovable property if the mortgage or security document makes provision for a right of the charge holder to make such an appointment. A fixed charge receiver is appointed only over the specific asset. Such appointments are very rare in Cyprus.
Εκποίηση ενυπόθηκου ακινήτου
Sale of mortgaged property
- A mortgagee may initiate the sale of the mortgaged property in order to recover the mortgaged debt upon filing an application for the sale of such property, if the mortgagor makes default in payment and fails to comply with the terms of the mortgage agreement.
- The sale procedure begins with the service of a written notice (Type Z of Annex II of the relevant law) by the mortgagee upon the mortgagor requesting him to settle the debt within one month, and advising the mortgagor that in the case of default, the mortgagee will apply to the director of the Department of Lands and Surveys requesting the sale of the mortgaged property.
- If the mortgagor fails to satisfy the mortgaged debt within one month following service of the notice, the mortgagee is entitled to file an application for the sale of the property with the Lands Office of the district where the property is situated.
- A mortgagee may also initiate the sale of Mortgaged Property in the event of the mortgagors default in payment without filing an application to the Director.
- In this process a reserve sale price is fixed for any sale of immovable property by public auction and will be the lowest bid accepted as first bid for the sale of such property. Where no bid is made that is equal to or higher than the reserve sale price, the sale is deemed to be abortive. The auction proceeds unless the mortgagor, or any other person appearing on behalf of the mortgagor, pays to the auctioneer such amount to settle the debt and all expenses.
Anticipated changes in the next two years
The Ministry of Finance is preparing various proposals for amendment of the insolvency and foreclosure laws in Cyprus. The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
With thanks to Alexandros Alexandrou and Andreas Paraskeva of Tornaritis for writing this chapter of the dictionary.
1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.